Light at end of tunnel for Rank says analyst

Light at end of tunnel for Rank says analyst

Friday, January 6, 2017
Hopes pinned on new gaming platform producing the goods

After a year of share price strife during which time the stock fell by 32 percent, casino and bingo operator Rank is set to enjoy a better year in 2017 with an opportunity to scale up in terms of online, according to new analysis.

Rank endured a tumultuous year in 2016. The company was in a high-profile failed £3.6bn joint venture bid with 888 for William Hill; meanwhile, UK regulatory worries clouded prospects and the somewhat lacklustre re-launch of its bingo operation on the Bede platform suggested the operation was struggling to find its feet.

It left the share price sitting at the 195p level at the end of the year compared to a high at the very beginning of 2016 of 302p.

But analysts at Canaccord Genuity suggest today that there is now a substantial opportunity for the company to scale up in terms of online, leveraging its land-based casino and bingo customer lists.

“For a company with some of the leading UK retail gambling brands, Rank is significantly under-represented in online gaming,” said analyst Simon Davies.

He points out Rank generates only 14 percent of total revenues form online, with the Mecca Bingo brand worth 30 percent of the whole bingo division’s revenues and the Grosvenor Casino brand earning just 9 percent of total revenues from its digital operations. Davies says Rank is “significantly under-indexing.”

Rank moved to improve its online positioning late in 2014 when it opted to switch platform providers to Bede, a move which hasn’t been entirely successful. “The experiment has not got off to a compelling start,” says Davies. While the Grosvenor transition has gone well enough – and Rank has successfully launched a Grosvenor-branded online sports-betting business via the Kambi platform – the Mecca switch has been “disappointing”.

“Having launched on Bede in February 2016, Mecca Online has seen a deterioration in its financial performance and the platform relaunch is at least six months behind plan,” says Davies.

He points out Mecca’s digital revenues fell by 4 percent in the six months to June while major competitor Gala Online grew by 9 percent in the 6 months to March.

However, Davies says there is still “strategic value” in the Bede relationship. “Rank has significant influence over Bede, it will get a differentiated product, and Rank remains confident that it will end up with a highly competitive platform during the course of 2017.”

He adds that he sees a profit recovery in the course of this year, with the only further bump in the road coming from the imposition of gross profits tax on bonus bets coming into play in March.

“We are projecting 11 percent CAGR in digital revenues over the next three years; and if the Bede platform delivers against management expectations, this should be a relatively conservative assumption.”

Totally Gaming says: It’s eyes down for Rank this year in terms of digital. There are still issues within the online bingo and gaming space - not least with the upcoming imposition of gross profits tax on bonus bets - so Rank and its platform supplier Bede will need to be on their mettle if they are to compete with the leaders in the sector.

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